In the context of lower rates, many customers began to receive loans at a lower interest rate to repay the previous loan. In the economic literature, this operation is called simply - refinancing a loan. It allows you to save money on the difference in rates and pay off the previous debt ahead of schedule. But this procedure is not beneficial to every client. Read more about what refinancing is, read on.
Destination
Loan refinancing can be used for different purposes: to repay the loan on more favorable terms, to extend the loan, if the client has unforeseen problems. But this service is only possible if, under the terms of the contract, there is no prohibition on revising the rate. To apply for a new loan, you will have to go through the whole procedure anew: apply, collect a package of documents, pay a commission and wait for a decision. Today, not every client is available to refinance loans. Banks make concessions only if the borrower has a good reputation (payments on the previous debt arrived on time, without delay). But in the face of increased competition, this service has become widespread. Financial institutions lure customers from each other. Even “bad” borrowers are given loans at a lower interest rate. Initially, this service was provided only to legal entities. But with the development of the mortgage and car loans sector, demand for it has increased.
Benefits
Credit refinancing allows the bank to attract new customers and increase revenues. But the borrower also benefits:
- Raises your credit rating. Sometimes clients who have problems with repaying a loan resort to the on-lending service. But the bank will agree to redeem the overdue debt only if the borrower proves that he will pay off the new one.
- Reduces loan payments. Often, after the transaction is completed, the client understands that he has chosen a not-so-profitable service scheme. The bank is unlikely to cut rates and reduce its income. But a third-party financial institution will gladly provide a new loan at a low interest rate to repay the previous one. For example, a client took $ 200,000 for 30 years at 12%, the amount of the monthly payment will be $ 2,057. When refinancing a loan at a rate of 9%, expenses will decrease to $ 1,609. Over 30 years, the amount of savings will amount to $ 160,000.
- Debt service life is increasing. Some banks provide on-lending services in connection with the birth of a child. In such a period, the financial burden on a young family is high. Refinancing a loan allows you to reduce it.
- The amount of collateral is growing. In normal economic conditions, the cost of housing increases in 2-3 years. If the financial situation of the debtor is good, then the bank may revise the loan amount in a larger direction. The bulk of the funds will go to repay the previous loan, and you can buy a car for the balance without registering a new target loan. When refinancing, a new loan is issued at a mortgage rate. The benefits are clear.
This is what refinancing is for the client.
Documents
To receive a new loan, the following papers must be attached to the standard package of documents:
- repayment schedule of an existing loan;
- pledge agreement;
- a certificate of current debt, the presence (absence) of delinquencies;
- receipts for payment of a loan.
What is refinancing?
The procedure is governed by the internal rules of a particular institution, but in general, one can distinguish such key stages:
one.The client seeks advice from the bank and obtains prior consent for refinancing.
2. The borrower collects documents and submits them for consideration.
3. The credit committee decides on the refinancing of debt.
4. The borrower warns the financial institution of the early repayment of the debt.
5. The client signs a new contract and repayment schedule with the second bank.
6. The financial institution issues a loan by transferring the amount to repay the old debt. If the loan amount is greater, the balance is issued to the client in cash.
7. The borrower receives a certificate stating that the old debt has been paid off and submits it to the bank as confirmation of the intended use of the funds.
8. The property is seized.
9. The borrower signs a new pledge agreement.
10. The bank imposes its arrest on the property.
The situation on the Russian market
Against the background of lower mortgage rates, on-lending can be arranged at major financial institutions in the country: Alfa Bank, Home Credit and Absolut Bank. The service is not very popular yet, because the mortgage in Russia has begun to actively develop recently. Yes, and banks are trying in every way to keep customers: I impose fines, declare a moratorium, increase the commission by early repayment of the loan.
Who needs it
In general, refinancing a mortgage is beneficial only if the loan amount today exceeds half a million rubles, and the contract has been drawn up for a period of more than 10-15 years. This primarily concerns customers who signed the papers in 2004. Then the rates were very high: from 11% in foreign currency to 20% in rubles.
Mortgage may also be refinanced by the bank that issued the first loan. But if the amount is small, the credit institution will refuse the service, since it simply will not earn money on it. In this case, you can try contacting another bank. If the income increased in proportion to the price increase, and the loan was taken for a short period, there is a chance that they will approve the application.
If refinancing a loan is executed in order to save on interest, then you need to seek to reduce the rate without changing the term of the contract. And vice versa. If reducing monthly payments is a priority, then the contract should be extended.
In addition, we should not forget that with a mortgage loan, the bank lays its profits in the first payments. That is, if the contract is drawn up for 30 years, then for about the first 36 months the client pays a commission for using the money. The bulk of the debt will be repaid in the coming years. Therefore, refinancing a loan should be issued in the early stages.
Obstacles
Banks limit the range of institutions whose customers they are willing to serve. Refinancing of other loans will not be issued if minor children are registered in the apartment, the borrower does not have any other property in the property. In the first case, the property cannot be seized, and in the second case, the value of the collateral may not be enough to cover the obligation. In addition, the client may encounter such problems:
- payment of a commission for considering an application, opening a loan account, issuing a loan;
- you will have to re-order a housing assessment and insure it with a partner of the bank;
- An apartment approved by one agency may be rejected by another.
Bank refinancing
This is the name of the regulator's process of providing loans to the country's financial institutions in order to maintain liquidity. A prerequisite more often is a sharp outflow of deposits. To bridge the cash gap, to prevent panic among customers, the financial institution needs cash. Banks are refinanced for a period of several hours (overnight) to several months (stabilization loan). When a financial institution pays off its obligations, the panic subsides, customers again bear funds for deposits. They pay a loan and interest.Sometimes, as an additional guarantee, the regulator requires security from large shareholders. The amount of refinancing depends on the needs and condition of the institution. Often, the regulator sets a higher rate in the form of a fine for allowing stressful situations. The re-lending service can be issued at the interbank. There the conditions are more favorable. The main difference between re-lending and rehabilitation is that funds are not provided to improve the institution, but to increase liquidity. This is what bank refinancing is.
Life without credit. What is refinancing?
